5.2d Cashflow Flashcards
1
Q
Cash flow forecasting definition
A
The process of estimating the expected cash inflows and cash outflows over a period of time
2
Q
Cash-flow cycle definition
A
The regular pattern of inflows and outflows of cash within a business
3
Q
Closing balance formula
A
Closing balance = opening balance + net cash flow
4
Q
Liquidity definition
A
The extent to which a business has assets to cover liabilities
5
Q
Advantages of cash flow forecasting
A
- Identifies potential shortfalls in cash balances in advance
- Makes sure business can afford to pay suppliers, creditors and employees
- Spots problems with customer payments
6
Q
Why can there be inaccuracies in cash flow forecasting?
A
- Changes in the economy
- Changes in consumer tastes
- Inaccurate market research
7
Q
Disadvantages of cash flow forecasting
A
- Sales can be lower than expected
- Customers may not pay on time
- Cost of production may prove higher than expected
8
Q
What are the two different versions of cash flow forecasts?
A
- Best case
2. Worst case
9
Q
What does the length of the cash flow cycle depend on?
A
- Type of product - some take longer to produce and are held in stock for longer
- Credit payments
10
Q
Ways to improve cash flow:
A
- Overdrafts
- Hold less stock
- Debt factoring
- Sale and leaseback
